There’s one important issue that private landlords often forget to take into consideration, causing serious confusion and trouble in the long run - tax. The IRD have strict rules and regulations around investment properties and the tax on rental income. If a private landlord isn’t diligent throughout the year, keeping very accurate records of the incomings and outgoings for each property, they often lose out in the tax process - in some cases, even paying more tax than what they should.
This is another reason why having your property professionally management has huge benefits. With all income and expenses for your property managed by a professional team, reporting is simple and the documents necessary for your tax return are all provided to you at the end of the financial year. Your property managers are always up to date with the any legislative changes around rental properties and tax so you can rely on them to provide accurate information in the tax process.
So to help everyone understand the tax obligations around rental property income, read the below information. It has been shared by the IRD and you can visit their website to find out more; www.ird.govt.nz.
Managing a Rental Property
Paying Tax on your Rental Income
Generally, any income that you receive from renting out property will be liable for income tax, so you must include it in your tax return. This income could be from renting out land or buildings, or it could be income you earn by having private boarders or flatmates living with you.
Rent In Advance
If you receive rent in advance, it is taxable in the year in which you receive it. For example, if your tenant paid rent on 30 March 2006 which covers the following two weeks, you must still return this income in the income year 1 April 2005 to 31 March 2006 (If you have a standard 31 March Balance).
Amounts received for tenancy bond and passed on to the Tenancy Bond Centre are not income. Amounts received from the Tenancy Bond Centre for payment of damages, rent arrears etc. should be included as income.
Expenses for Rental Properties
The following expenses can be deducted from your rental income:
Property Tax Changes - October 2015
On 1 October 2015 property tax rules changed, having big implications on investment properties. The important things all landlords need to know include:
The Bright Line Rule has Changed
From 29 March 2018, people who sell a house in New Zealand within five years of buying it must pay income tax on any gains, unless it's their main home or another exception applies.
If you bought a house 1 October 2015 to 28 March 2018, the original two year bright-line rule still applies for you. That means if you sell your house within two years of buying it you'll pay income tax on any gains, unless an exception applies.
New Information Requirements
When buying, selling or transferring New Zealand property, excluding your main home, you’ll provide your:
You’ll give your property lawyer or conveyancer this information and may choose to do so by filling in a Land Transfer Tax Statement which is available here.